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Accountants have been embarrassed with the negative press surrounding our industry. Jay Leno and David Letterman have told more accountant jokes in the last year than attorney jokes. During all this turmoil, sweeping new legislation has been quickly passed into law. In my judgment, the effect of the new Sarbanes-Oxley bill, (along with the tightened rules at the Securities and Exchange Commission and most governmental agencies) will be as great as the Securities Act of 1934 on our profession.
Industry Revenue Projected to Top $100 Billion
Sophisticated Bookkeeping-an Opportunity
Internal Audits and Advice
Price Increases
Industry Revenue Projected to Top $100 Billion
I project that total revenue for our industry will top $100 billion this year. You will have many opportunities to expand your practice in areas never before available to you. The primary reason for this will be the segmentation of allowable services for large public companies. No longer will the 17,000, or so, publicly held companies hire just one accounting firm to do all their audit, tax, and consulting work. These large companies have used a variety of law firms for many years, so the increased complexity won’t be new to them.
Sophisticated Bookkeeping-an Opportunity
One of the first areas of tightened regulation more clearly defines certain services the independent audit firm cannot perform. Bookkeeping is one huge area. There is a heavy burden on large firms to avoid making adjusting entries or in calculating tax provisions. For the entrepreneurial accounting firm, you have a significant opportunity to help large companies clean up their accounts in preparation for the independent audit. In most cases, much of this work can be done in the fall and early winter, before tax season gets started.
Internal Audits and Advice
Another significant area of opportunity will be in providing internal audits and advice to audit committees and management. Internal audit assignments can no longer be performed by the independent attest-firm. In some cases, the independent auditor will give up the attest role because the internal work is less risky and more profitable. This opens the door for those accounting firms with deep expertise in SEC registered companies to increase market share.
There are reports of audit committees, CEOs and CFOs engaging accounting firms to provide them assurance that the financial statements they are endorsing are fair.
Price Increases
A few years ago, a partner in a large accounting firm told me, “I can price the hours it takes to perform SEC work. I cannot price the risk involved in the engagement.” That will soon change. Large audit firms have packaged services in the past so that audit fees were discounted in order to obtain more lucrative tax and consulting assignments. This approach will be more limited in the future. You will see the larger firms begin to price in the “risk” of the independent audit engagements. With such price increases at larger companies, you will experience a ripple effect on smaller and non-public companies.
There will be opportunities to increase attest fees for traditionally low-priced engagements. Not-for-profits and governmental agencies, who have enjoyed a cheap ride on the backs of accounting firms will no longer have it so good. Discounting will be less of an issue as these organizations purposefully shy away from less competent auditors, for their own protection.
There are many more service opportunities in a highly regulated market place for accountants and consultants. As the full effect of Sarbanes-Oxley is felt and states adopt their own rules, we will see the market for accounting services greatly expand.
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